The Philippines is an archipelago composed of about 7 100
islands and islets that extend more than 1 850 km from north to south. It is
bound by the South China Sea to the west and the Pacific Ocean to the east. The
country is divided into three major island groupings - Luzon in the north,
Mindanao in the south, and the Visayas Islands in the centre. There are 16
administrative regions and 76 provinces.

The total land area of the Philippines is about 30 million ha,
including inland water bodies. The islands are volcanic in origin and are, for
the most part, mountainous with many active volcanoes. The mountain ranges
generally run along the main axis of the islands, parallel to each other and
close to the coasts. The largest lowlands are in Luzon and Mindanao with other
large plains in Panay and western Negros in the central islands.

From the 1950s until the late 1970s, the forestry sector was
one of the mainstays of the Philippine economy, particularly the logging and
wood-processing industries. Between 1975 and 1980, forestrys contribution
to the gross national product (GNP) ranged from 1.5 to 2.17 percent (at 1972
prices). Logs were a major part of the Philippines international trade,
together with primary products (such as sawnwood, veneer and plywood). However,
by 2001 the forestry sectors contribution to the GNP had declined to only
0.09 percent (1985 prices) (Table 2).

According to the Philippine Master Plan for Forest
Development, the forest cover decreased from 17 million ha in 1934 to 6.7
million ha in 1990 (DENR/FMB 1991). Official forestry statistics are based on
projections from the first national forest inventory in 1969 and the second
inventory in 1989. According to the projections, the Philippines currently has
5.4 million ha of forests (Table 3).

Various sources indicate different rates of deforestation in
the Philippines. The Philippine Master Plan for Forest Development estimated
forest cover reduction of about 100 000 ha per annum (DENR/FMB 1991).
Other assessments ranged between 50 000 and 70 000 ha per annum, while
FAO provided a figure of 89 000 ha per annum (FAO 2000; 2003). The lower
figures reflect the assumption that since the natural forests are now relatively
inaccessible, the forest conversion rate has slowed compared to the rates of the
1950s and 1970s.

The Natural Resources Accounting Project (NRAP) estimated that
timber resources in old-growth dipterocarp forests decreased at an annual rate
of 52 million m3 between 1980 and 1989, equivalent to an annual asset
depreciation rate of PHP41.6 billion in constant 1985 prices. Volume in
second-growth dipterocarp forests, on the other hand, increased by an average of
12.3 million m3 for the same period, translating to an annual
appreciation of PHP11 billion, representing an annual volume growth and real
increase in stumpage values of 1.5 and 3.7 percent, respectively (DENR/NRAP
1991).

Furthermore, the net depreciation that resulted from changes
in the physical stocks of both old-growth and second-growth dipterocarp forests
averaged PHP30.6 billion per annum (from 1970 to 1989). The depreciation
was highest in the 1970s followed by lower rates in the 1980s. Important factors
that contributed to the depreciation of the dipterocarp forests were conversion,
ineffective protection of the residual growing stocks and logging damage
(DENR/NRAP 1991).

The NRAP attributed an average annual appreciation of PHP1.7
billion to the increase of about 26 800 ha of plantations per annum.
However, it warned that this rate is not substantial enough to compensate
for losses in dipterocarp forest... Similar asset depreciation rates were
estimated for pines, mangroves and rattan resources (Table 4).

The need to actively pursue the development of industrial
forest plantations was realized in the early 1970s. Previously, the focus had
been on converting the natural forests into managed forests based on
the principle of sustained yield management and through the
silvicultural methods prescribed under the Philippine Selective Logging System.
Although policies were already enunciated to encourage planting of trees, these
were mainly focused on rehabilitating denuded lands and grasslands with the
primary goal of forest restoration and not necessarily wood
production.

The enactment of Republic Act No. 115in 1947 can be
regarded as the first major government effort to restore the forest cover. This
Act created a Reforestation Fund from charges levied on timber harvested on
state forest lands, in addition to the regular forest
charges.[118] This fund was used exclusively
by the then Bureau of Forestry to finance reforestation projects.

To accelerate tree planting, the Reforestation Administration
was created in 1963 according to Republic Act No. 2706. Its mandate was to
hasten the reforestation of barren and denuded public lands. All reforested
areas were declared permanent forest reserves. Until the 1970s, the so-called
regular reforestation
projects[119] that were developed from
the Reforestation Fund and administered by the Reforestation Administration were
the only evidence of significant forest plantation development.

By 1973, government forestry administrators recognized that
the natural forest was not an inexhaustible resource, and that there was a need
to augment timber resources through industrial forest plantations. As a result,
the Presidential Letter of Instruction[120]
(LOI) No. 145, issued in November 1973, directed the Presidential Committee on
Wood Industries Development to submit a programme to promote the
development of industrial plantations and tree farms, to help ensure wholesome
ecological balance and broaden the resource base of the (forest-based)
industries (Domingo 1983).

This approach was encouraged to help rehabilitate denuded
watersheds and use barren public forest land for the production of commercial
wood and fruits. It was obvious, even then, that the immediate reforestation of
barren lands needed to take precedence over timber production. Even fruit trees
were considered eligible for development of forest plantations. This
notion that reforestation and forest plantation
development were synonymous would filter down through generations of
forest administrators, and would significantly impact the formulation of forest
plantation development policies, strategies and programmes.

The reforestation policy and LOI 145 were subsequently
embodied in the Forestry Reform Code (Presidential Decree 389) of 1974, and
eventually in the Revised Forestry Reform Code (Presidential Decree 705) of
1975. Presidential Decree 1559 of 1979, amending the Revised Forestry Reform
Code, reiterated the establishment or development and maintenance of
forest tree plantations. In 1980, LOI 423 sanctioned the establishment of
industrial tree plantations to intensify and accelerate forest ecosystem
management, thus leading to the creation of the Program for Forest
Ecosystem Management (ProFEM) (Domingo 1983).

ProFEM was to have re-established forest cover nationwide,
calling on all government agencies to undertake tree planting in
watersheds, along roads and in parks. Substantial funds were infused into the
Bureau of Forest Developments reforestation projects. In reality, much of
the tree planting was ceremonial and cosmetic in nature - plantings by agency
personnel during holidays or agency anniversaries - and often in easily
accessible areas such as roadsides and parks. In most cases, there was no
follow-up or maintenance, and many plantings were conducted in the
same places year after year. The statistics on areas planted under this
programme are therefore unreliable in the absence of a good georeferenced
monitoring system.

A vital element missing from ProFEM was a clear definition of
ownership of the land on which the plantings were conducted and of intermediate
and final products. While the areas planted, especially in the so-called
critical watersheds, were legally state lands, these areas were
under de factocontrol of upland farmers and land claimants who regarded
the government-mandated tree planting as a threat to their hold on the land. To
protect their interests, these farmers and claimants often burned areas planted
when the opportunity arose.

Throughout this period, the underlying objective of forest
plantation development was environmental considerations and not wood production,
despite official pronouncements on the need to augment the wood supplies through
plantations. The Timber License Agreement (TLA) holders were mainly interested
in harvesting natural forests. The plantations that they established were only a
token gesture to comply with the reforestation requirements of the law and their
license agreements. Although a few forestry companies established forest
plantations because it was in their long-term interests, most private
enterprises focused only on extracting timber from old-growth forests.

In summary, forest plantation development before 1980 was
mandated by command-and-control, rather than through economic or financial
incentives. Also, the bulk of plantation development was funded by direct public
investments through annual appropriations to government agencies, primarily the
Bureau of Forest Development. The emphasis was on planting seedlings and
reporting hectares planted, with little or no quality control or planning for
sustainable long-term plantation timber supplies.

1980 to 1985

Between 1980 and 1985, forest plantation development was
accelerated through the Industrial Tree Plantation (ITP) programme. Presidential
Executive Order No. 725 of 1981 mandated the establishment of plantations in
open, denuded, brushland and poorly-stocked
areas.[121] TLA holders were given six months
from the promulgation of the Executive Order to:

Apply for an ITP
lease agreement over suitable areas not exceeding 30 percent of their respective
TLA areas; and/or

Implement an approved
seven-year reforestation plan within their TLA areas.

To encourage and facilitate the establishment of industrial
tree plantations, the government founded the National Industrial Tree
Corporation, a subsidiary of the government-owned National Development Company,
offering incentives such as:

A nominal
application fee of PHP0.50/ha;

Exemption from land rental for
the first 25 years of the lease. Upon renewal of the lease for another 25 years,
the rent would be PHP0.50/ha/year for the first five years, and thereafter,
PHP1.00/ha/year;

No rent from a lessee who,
upon verification, substantially met the development schedule of the plantation,
tree farm or agroforestry farm, as prescribed in the approved plans;

Reduced taxes on plantation
timber - only 25 percent of the regular forest charges on timber from natural
forests;

Exemption from certain
internal revenue taxes;

Tax deductible plantation
development expenses; and

Long-term low-interest loans
from government financing institutions, such as the Development Bank of the
Philippines.

During this period, 155 000 ha of state forest lands were
granted to the private sector for tree plantation development, with tenurial
arrangements of 25 years, renewable for another 25 years (Table 5). Most of
these areas had been (fully or partially) under timber concession agreements,
which were converted to tree plantation
leases[122] pursuant to Executive Order 725.
Notable among the concessionaires that made use of the order were
better-performing TLA holders with long-term forest management and development
programmes. Several concessionaires took advantage of the lease-conversion
incentive to:

Strengthen their
tenure with the expectation that the government was about to shift production
focus from natural forests to forest plantations;

Access forthcoming technical
and financial support from the National Industrial Tree Corporation and
government financing institutions; and

Convert the plantations they
had established under their timber license agreements so that they could claim
them instead of handing them over to the
government.[123]

Others, such as provincial electric cooperatives and a few
pioneer entities, also saw a long-term business prospect in the programme.
However, actual plantation establishment was far below the total area covered by
the ITP agreements (Table 6). Of the 155 000 ha placed under ITP lease, only 20
600 ha were reported to have been established as industrial wood plantations.
While the TLAs reportedly planted 111 300 ha during this period, not all of the
areas could be considered as timber plantations for the following
reasons:

The quality of
these plantations as potential economic sources of industrial wood was
questionable; and

It was common knowledge that
the extent of plantings reported was exaggerated by as much as a factor of two
or more.

The reported government planting of about 180 000 ha was
mainly due to regular government reforestation for watershed rehabilitation and
environmental purposes. Thus, they could not be considered as a dependable
source of industrial wood.

A significant development during this period was the
Integrated Social Forestry (ISF) Program, established through Presidential
Proclamation 1260 in 1982. At that time, it was a radical departure from the
traditional Philippine forestry doctrine in several aspects, by:

Acknowledging that
a substantial portion of the rural population was occupying and living on state
forest lands, albeit in economically marginal conditions;

Decriminalizing
occupancy of state forest lands which, before then, was punishable by fines or
imprisonment;

Introducing the concept of
resource stewardship by forest land-dependent families and communities, a
privilege which, for decades, had been exclusive to corporate entities with
strong political and economic linkages; and

Being such a socially- and
politically-revolutionary programme introduced during a regime of dictatorship
and cronyism.

The processes and institutions developed under the ISF Program
were to shape the community-based forest management (CBFM) strategy about two
decades later. The programme introduced a family-approach to reforestation
(contracting of reforestation work to upland families), land-tenure recognition
to former illegal forest occupants through a 25-year Certificate of Stewardship
Contract (CSC), forestry extension services to upland farmers, agroforestry
technology, soil and water conservation measures and a host of support
mechanisms to address poverty and forest resources degradation in the uplands
simultaneously. The stewardship agreement required participating farm-families
to plant forest tree species on at least 20 percent of the land allocated to
them.

The ISF Program affirmed that the tenure of poor upland
farmers to land and forest resources was a vital element of forest management.
It would have contributed significantly to the expansion of the wood-resource
base through smallholder woodlots, but the expected massive reforestation by
upland communities was constrained by several policies, technical problems and
market-related flaws. It was unclear from the start how the timber produced on
ISF farms was to be treated at harvest age. It was implicit, and rightfully
assumed by the farmers, that they owned the trees they planted. In the absence
of precise administrative pronouncements, law enforcers on the ground required
documentation from farmers before the trees could be harvested, transported and
marketed. Harvesting permits from the local government forestry offices were
required even for minuscule volumes from individual woodlots; farmers had to
prove not only to the local forest rangers but even to the local police that the
timber they had harvested really came from their woodlots and not from
government plantations.[126]

Furthermore, forestry extension services provided poor
technical advice on plantation stock quality control and plantation management,
resulting in low-quality plantations, low volume per hectare, and thus
unattractive revenues. The wood-processing facilities were not structured
properly to process the small-dimension timber economically. The continued
availability of cheap illegal timber from natural forests further depressed the
prices for plantation wood. Other market distortions resulted from the emergence
of cartels of middlemen who introduced oligopolistic practices in the sale of
timber from small woodlots. Nevertheless, the ISF Program remained the main
management programme for the populated forest lands well into the late
1990s.

1986 to 1992

The political and economic transitions that ended the Marcos
dictatorship of more than 20 years marked the period between 1986 and 1992.
Opposition to the Marcos martial rule involved a wide range of ideologists who
formed the core of a robust civil society movement in the country. The more
organized and legal (in contrast to the more revolutionary armed
underground) supporters of Corazon Aquino during the ouster of
Marcos were, at one time or another and in various forms, at the forefront of
the environmental movement. A new Philippine Constitution was promulgated in
1987, and many natural resource conservation advocates became the new political
and economic leaders. Malayang (1998) describes the transition as a process of
political ecology, which was to have a profound effect on the
re-orientation of Philippine forestry in the postMarcos era.

The spirit of the civil society movement also permeated
discussions on the Philippine forest policy and management of the states
forests. Resistance to large-scale forest plantations and timber concessions was
rife because of the extensive cronyism practised during the Marcos years. Other
reasons for opposition included:

loss of
biodiversity of the native Philippine forest;

threats to the rights of
access of forest-dependent communities and indigenous peoples to forest
resources; and

control of forest resources
being dominated by the economic elite and foreign investors.

Despite evidence to the contrary (Brown et al. 2001), a
total commercial logging ban (or a more drastic total ban on all forms of
tree-felling) is regarded by a significant segment of environmental advocates as
the only rational way to conserve the Philippines forest
resources.

A major feature of the transition period was the redefinition
of the modes of access to natural resources. Before 1987, the privileges for the
use, management, development and utilization of natural resources were granted
through leasehold arrangements. In forestry, the main form was the TLA system.
Under the 1987 Constitution, this arrangement was terminated and replaced by
product-sharing, co-management, or joint-venture arrangements between the state
(as owner of the resources) and the private sector.

The forest plantation programme thus had to be redesigned to
comply with the constitutional requirement. While the TLAs and ITP leases issued
prior to 1987 would remain legally in force until their expiration, subsequent
agreements had to be consistent with the Constitution. In 1991, however, TLAs
were told to cease logging in old-growth forests and to shift harvesting
operations to mature second-growth forests. The Industrial Forest Management
Agreement (IFMA)[127] replaced the ITP lease
agreement.

The IFMA was among several institutional reforms designed to
support the democratization of access to natural resources. Its
primary objective was to encourage private sector participation in developing
forest resources, and to spread the benefits from these resources. Forestry
programmes were planned to address the different needs of stakeholders -
inter alia forest-dependent families and communities, local governments,
indigenous peoples and forestry corporations.

In 1991, DENR Administrative Order No. 42 provided the
following incentives:

In addition, adequately-stocked secondary forests could be
included in IFMA areas, and could be logged when plantations were established.
Apparently, this was the most attractive incentive for the private
sector.

About 187 000 ha were granted to the private sector under the
new programme and tenurial arrangements. The area was slightly larger than the
area granted for the same purpose during the Marcos regime. The difference,
however, lay in the thinking of the people and investors at the early stages of
this political transition period.

In terms of actual plantation establishment, the private
sector accounted for only 28 803 ha, not a significant increase from the
previous period. There are two reasons for this continuously slow
progress:

The current and
previous ITP lease agreement/IFMA awardees were just speculating on the new
governments move to privatize public assets; and

The incentives offered were
insufficient and thus of little effect.

During the period of change, the forest plantation area
reportedly surged to an all-time high of more than 0.5 million ha (see Table 6).
However, most plantings (425 800 ha) were the result of massive infusion of
funds through loans from the Asian Development Bank/Overseas Economic
Cooperation Fund for contract reforestation by families, rural communities,
local governmental units and non-governmental organizations (NGOs) under the
Forestry Sector Program.[128] Despite
pressure to balance both production and protection, most plantations were
established to rehabilitate watersheds. The relics of these plantations still
exist, but they cannot serve as an important supply source for industrial
wood.

1993 to 1998

This period was characterized by renewed government efforts to
improve the policy for forest plantation development. The implementing rules and
regulations for IFMAs were rewritten twice, causing confusion, and
consternation, for the private sector.

IFMAs covering 127 400 ha were awarded to 126 corporate
entities for plantation development during this period (Table 5). Many awardees
were TLA holders whose leases were expiring, or who were using this chance to
obtain a new 25-year tenure on state forest lands.

Plantation establishment by the private sector remained behind
expectations. Access to, and harvesting of, natural forests as part of IFMA
operations were still key factors in the establishment of forest plantations.
Most of the IFMA holders cited unrest, opposition to large-scale plantations by
local people, or simply a perceived unfavourable investment climate as reasons
for the dismal performances.

In 1993, the rules and regulations for IFMAs were revised and
DENR Administrative Order No. 60 provided the following incentives:

IFMA holders were
allowed to interplant agricultural crops between rows of trees within areas
designated for IFP in their IFMA areas;

All planted trees and other
crops established according to an IFMA, or transferred from the Department of
Environment and Natural Resources (DENR), belonged to the IFMA holder who had
the right to harvest, sell and utilize products at the time specified in the
approved Comprehensive Development and Management Plan;

No restriction on the export
of logs, lumber and other forest products harvested from IFMA plantations was
placed on an IFMA holder. However, logs or unprocessed lumber from indigenous
trees growing naturally in an IFMA area could not be exported;

All plantation products
derived from an IFMA area were exempted from forest charges, but all products
derived from indigenous trees and/or other plants growing naturally in an IFMA
area and from plantations established in compliance with TLA reforestation
obligations were subjected to the usual forest charges;

IFMA holders were entitled to
all relevant incentives provided for under the Omnibus Investment
Code.

The 1993 order liberalized the IFMA administrative system
by:

Categorizing the
IFMAs into two types: Type I covered open, denuded and grassland areas to be set
aside only for plantation establishment; Type II included secondary forests that
could be harvested during plantation development operations;

Increasing the maximum area
per IFMA from 20 000 ha to 40 000 ha;

Allowing TLAs to be converted
to IFMAs;

Providing for the protection
of affected rural communities and indigenous peoples
interests;[130]

Enabling the DENR to actively
identify and plan for IFMA areas even prior to any application by a private
entity;

Prescribing the procedures for
bidding on IFMA areas by the private sector;

Prescribing the rate of
plantation establishment, such that any IFMA should be fully developed after 12
years;

Permitting a maximum of ten
percent of the IFMA area to be planted with permanent agricultural crops to
generate cash flow before the first rotation; and

Allowing the IFMAs to be
transferred to enhance their marketability as an investment venture.

Further amendments were made mainly as the result of three
factors. Firstly, the new administrators of the DENR emphasized environmental
protection and community-based natural resource management. Secondly, in 1995,
Presidential Executive Order No. 263 declared that CBFM was to be the main
strategy for sustainable forest management. Finally, perhaps the most
significant development at this stage, it was recognized that the IFMAs were
being used as fronts for unauthorized or excessive logging in the natural
forests. Thus, the 1997 DENR Administrative Order No. 4 stipulated the following
conditions:

IFMA holders could
interplant between trees within areas designated for IFP in their IFMA areas,
provided that there would be no adverse impacts on biodiversity, as indicated in
a prior environmental impact assessment;

All trees, except those for
environmental protection purposes, planted by the IFMA holders belonged to the
IFMA holders who had the right to harvest, sell and utilize them;

The IFMA holder could export
logs, lumber and other forest products harvested from the IFMA plantation, in
accordance with the government allocation system;

All plantation products
derived from an IFMA area were exempted from forest charges; and

No restriction was placed on
the use and improvements of the IFMA as collateral for obtaining loans for
further development of the IFMA area, provided that prior approval from the DENR
was obtained.

Previous fiscal and credit incentives remained but the
privilege of IFMA holders to harvest in natural forests was withdrawn. These
were to be managed as protection, and not production, forests. In addition, the
IFMAs were to be covered by the environmental impact assessment procedures of
the DENR.

Judging by the slow rate of forest plantation development
until 1998, it is obvious that the incentives were ineffective. The major
constraint appeared to be the limited financial resources for extensive
plantings. With no substantial credit support from governmental or financial
institutions, the only alternative was to generate revenues from the natural
forests to finance plantation development. This, however, was strongly opposed
by both governmental and non-governmental environmental advocates, which from
the investors perspective provided a major disincentive to plantation
development.

1999 to the present

With a change of government in mid-1998, new administrators
favouring the corporate forestry sector were appointed to lead the DENR. In
1999, the rules on IFMA were once again revised ostensibly to encourage private
sector investment in forestry. The 1999 Administrative Order No. 53 entitled
IFMA holders to:

Interplant
secondary crops between trees;

Harvest, sell and utilize all
planted trees and other crops in whatever marketable form(s) and in whatever
legal manner(s);

Export logs, lumber and other
forest products derived from the IFMA area without any restriction, although
timber from natural forests could not be exported;

Be exempted from forest
charges on plantation products;

Claim all relevant incentives
under the Omnibus Investment Act;

Transfer plantations that are
at least three years old to (rural) cooperatives upon fair compensation or
payment to the IFMA developer, or through a financing institution, or be open
for investments;

Use plantation crops that are
at least three years old as collateral for loans from government development
banks, financial institutions, or government-owned and controlled corporations;
and

Secure access to an additional
area, or a new IFMA, if the IFMA holder has satisfactorily complied with the
terms and conditions of the original IFMA.

Any TLA can be automatically converted to an IFMA if the TLA
holder has proven to be a capable forest manager. Therefore, TLA holders can
renew, for another 25 years, their tenure over state forest land. The order also
restores the privilege of harvesting in adequately-stocked secondary forests. It
allows for the sale of timber felled in areas prepared for plantation
establishment. Again, the substantial deviation from the previous order was the
issue of harvesting in natural forests.

A significant recent development was the identification and
proclamation of a 600 000 ha timber corridor in Northeastern
Mindanao, together with a 200 ha wood-based economic zone for an
integrated wood-processing facility, to attract foreign and local forestry
investors. About 170 000 ha of this corridor have been awarded to a consortium
of companies with foreign capital, with the endorsement of two foreign
governments that are major players in the international forest products trade,
through a new Co-Production Sharing Agreement. However, the allocation to the
consortium is being questioned.

The impeachment of the President in January 2001 brought about
a new government, and the DENR again had a change of leadership, which is
currently reviewing the policies and the economic environment in
forestry.

CONCLUSIONS

The development of private industrial forest plantations has
not progressed well in the Philippines. Despite the incentives provided, and the
prescriptions of the Philippines Forestry Master Plan, no substantial wood
resources are likely to be forthcoming from either private or government
plantations in the near future unless the policy and institutional environments
are thoroughly revamped. Government involvement in plantation development is
decreasing as international donor assistance and major loans to forestry draw
closer to their termination. TLA reforestation is also slowing down as the last
of the TLAs are about to be closed, and plantation development through IFMAs and
CBFM is not picking up substantially.

Many factors constrain the development of forest plantations
in the Philippines. These factors are interlinked, thus aggravating the
situation and effectively hindering the establishment of viable plantations.
Generally, the major consideration is the financial viability of plantation
investments. Unless attractive financing and credit arrangements are set up for
forest plantations, investors will continue to favour other sectors (for
example, real estate, information and communications). The government has to
offer secure land tenure to investors. This issue could be addressed by ensuring
that investors have complete control over the land for at least two rotations,
and that personnel changes in government agencies do not undermine the previous
agreements between investors and the government.

For the last several decades it has become clear that the
interest of the private sector in establishing plantations is closely linked to
harvesting rights in natural forests. On this issue, policies have shifted with
each new leadership, as can be seen hereunder:

1991 DENR
Administrative Order No. 42: Secondary forests are allowed to be included in
IFMA areas; selective logging in natural forests allowed but only after all open
areas have been planted;

1993 DENR Administrative Order
60: Provides for simultaneous plantation development and harvesting of natural
forests;

1997 DENR Administrative Order
No. 4: No cutting whatsoever in natural forests; and

1999 DENR Administrative Order
No. 53: Reverted back to the 1993 order allowing simultaneous establishment and
harvesting.

The frequent reversals of government policy have seriously
eroded investor confidence. On the other hand, there is sufficient evidence that
many investors were not interested in plantation development per
se, but only wished to gain access to the remaining natural forests under
the guise of integrated forest management. Such behaviour seriously
erodes the credibility of the private forestry sector and creates suspicions by
the government forestry administrators and civil society.

Despite the historical political and institutional
instabilities and uncertainties in the Philippines, the current investment
climate for forest plantation development appears to be attractive. Incentives
seem acceptable to the private sector; companies continue to file applications
for tracts of state forest land under the Integrated Forest Management Program.
The main barriers relate to security of tenure, and consistency in forest policy
and operating guidelines.

The current contentious debate between
protectionists and productionists has delayed the
passage of a new forestry law, which has been pending in Congress for more than
ten years. In the absence of such a law, the seriously outdated Revised Forestry
Code of 1975 applies and an appropriate institutional, policy and investment
infrastructure for industrial plantation development is not in place (Brown
et al. 2001).

In general, direct incentives failed to achieve the objectives
of the various Administrative Orders. There has been no substantial increase in
the rate of plantation establishment except in areas where companies are
dependent on a sustained long-term supply of plantation wood. The private sector
has continuously pointed out their constraints:

The tenure of 25
years, renewable for an additional 25 years is insufficient for long-term
investments. The private sector is advocating for tenure security akin to
private ownership, or even complete privatization of state forest
lands;

Tax incentives and the
tariff-free import of inputs have not significantly improved the attractiveness
of plantation investments; similar incentives are granted to other pioneer
industries that, in the view of investors, yield more secure and higher
returns.

Despite the constant urging of
the government, financing institutions do not provide concessional loans to
investors in plantation development. Banks are unconvinced of the commercial
viability relative to alternative investment opportunities. The collateral value
of state forest lands and established plantations is low in the financing
institutions valuations because these lands are state lands and would be
difficult to foreclose in case of creditor default. In addition, banks perceive
plantation development as a high-risk venture due to outbreaks of fire, pests
and diseases.

The potential role of CBFM in forest plantation development
has not been recognized adequately. Full rationalization of forestry rules and
greater devolution of forest management functions to communities and
peoples organizations should be pursued. Research and development and
extension support to CBFM should be enhanced. Strengthening the financing and
market links between corporate forestry entities and CBFM organizations is
necessary. The corporate sector has the technical expertise in manufacturing and
marketing forest products, including access to financial resources, while the
CBFM organizations can offer low-cost management and operations.

The present ban on the export of logs and rough lumber from
the natural forests needs to be re-evaluated. The objectives of the bans have
not been achieved; in fact the bans have had the opposite effect of causing
further forest degradation (Brown et al. 2001). While there is no ban on
the export of plantation wood and products, the ban on export of logs and lumber
from natural forests is creating a market imperfection; the economic value of
wood from natural forests is not realized, and the value of forest assets in the
hands of the private sector is depressed. The foregone export earnings could
have been re-invested into forest resources development, including tree
planting.

There is a persistent clamour from forest plantation
developers for the government to fully deregulate the harvesting, transport and
trade of plantation timber. The current regulations are too restrictive and
serve as significant disincentives to plantation development; they also
encourage corruption and rent-seeking behaviour, particularly by forest law
enforcement staff. The reason put forward by those opposed to deregulation is
that the government should protect its forest assets and, in so doing, needs to
ensure that the wood for sale has not been poached from government forests. This
is a weak argument as the government has the mandate and resources to take
appropriate steps to physically secure its forest assets. It is the government,
not the private tree farmer of trader, which should prove that the wood being
traded did not come, or have come from, government forests. The burden of
proof should lie with the government, not with the private sector.

The problems facing Philippine forestry are numerous and
complex, but not insurmountable. The Philippine Government can begin by
unequivocally declaring: (a) production forestry, particularly plantation
forestry, is recognized as a strategic base for rural development and poverty
reduction; (b) that the government recognizes, and will support, the important
role of private capital and community forest managers in forestry; and (c)
serious and consistent efforts to remove the disincentives and the unfavourable
policy and institutional environments that curtail plantation
development.

[116] Director, Forest
Management Bureau, Department of Environment and Natural Resources, Quezon City,
Philippines[117] Forest land refers to
lands that are to be used primarily for forestry purposes; these are not
necessarily covered by forests at present.[118] Forest charges are
royalties collected by the government from timber concessionaires based on the
net timber volume extracted from the forests. During the time the Reforestation
Fund (1950s to late 1960s) was in effect, the forest charges were about
US$0.50-1.00/m3 of timber, depending on species, at the then exchange
rate of PHP4.00 = US$1.00.[119] In local terms, these
were projects funded by general government appropriations, as differentiated
from foreign-assisted project funded by official development
assistance loans and grants.[120] During the
martial-law years starting from 1972, legislation was in the hands of the
President and was enacted through Presidential Decrees, Presidential
Proclamations, or Letters of Instruction.[121] The focus on
open and denuded lands as priority areas for reforestation (and
plantation development) recurs in all administrative issuances until today, and
reflects the mindset that reforestation and forest plantation
development are synonymous.[122] In this paper, the
terms agreements, licenses and leases are used interchangeably,
although in the Philippine legal system, they have different terms and
conditions.[123] TLA holders were
required to replant one hectare for every hectare of natural forest they logged.
Technically, these areas were on state-owned forests.[124] These plantings are
those referred to in Footnote 5.[125] These refer to
roadside plantings, urban and municipal tree parks, and similar amenity
plantings, and are not considered as potential sources of industrial
wood.[126] This mindset of
enforcers to make tree farmers prove that their timber is not poached from
government plantations is still pervasive, and serves as a major disincentive to
the development of tree plantations on private lands. It has been argued that
the burden of proof should be on the government, not the private tree planter.
However, law enforcers continue to ask for proof of legality of the
timber, resulting in high transaction costs and unethical practices.[127] The IFMA was later
renamed Integrated Forest Management Agreement to legally accommodate
other non-plantation forestry activities within forest lands, such as management
of natural forests.[128] The Forestry Sector
Program was a landmark for Philippine forestry because it, together with
concurrent initiatives, resulted in significant policy and institutional reforms
in the sector.[129] Land rent is
prescribed in the Forestry Reform Code of 1975 as: No rental shall be
collected during the first five (5) years from the date of the lease; from the
sixth year to the tenth year, the annual rental shall be fifty centavos (Peso
0.50) per ha; and thereafter, the annual rental shall be one peso (Peso 1.00)
per ha. Provided, that lessees of areas long denuded, as certified by the
Director and approved by the Department Head, shall be exempted from the payment
of rental for the full term of the lease which shall not exceed twenty-five (25)
years; for the first five (5) years following the renewal of the lease, the
annual rental shall be fifty centavos (Peso 0.50) per ha; and thereafter, the
annual rental shall be one peso (Peso 1.00) per hectare.[130] The DENR
Administrative Order No. 2 in 1993 provided guidelines to recognize indigenous
peoples ancestral claims, at the time when the Indigenous Peoples
Rights Act was not yet enacted by Congress.